Ben Saunders, a Chartered Tax Adviser who works for Tolley, the publishing company that earlier this year described Margaret Hodge MP as ‘Tax Prat of the Year‘, has published a critique of the Fair Tax Mark. It concludes with the comment ‘Fair Tax Mark? Pass me the Trade Descriptions Act please’. We could, of course, dismiss that in the same way as many dismissed the comments on Margaret Hodge but we won’t; part of our ethic is to be open with our critics. In this case we offer what follows as a reasoned response to his criticisms.

That I then do, for about 2,500 words.

The summary is a simple one though: if Saunders thinks that transparency and tax havens are not tax issues then he is wrong on both counts whilst his maths would remove much of the information we wish to disclose and including deferred tax in the tax charge we should consider would mean much tax avoidance would remain unidentified. As for demanding that we take into account taxable and not accounting profits, it is an intriguing idea with just one flaw in the logic, which is that taxable profits are not published meaning no Fair Tax Mark could be created.

Maybe that’s what he wants but we wanted a Fair Tax Mark and I believe that is exactly what we have delivered.

23 Responses to “The Fair Tax Mark addresses its critics”

I think the attack is part of the sustained barrage coming from those whose worldview, if not their livelihoods, are in danger of falling apart around them. The problem they face is that they are shouting into the wind.

Richard, I asked you on the Fair Tax Mark blog to note that this was a personal blog. Please do so here too.

I would point out that in 2,500 words(!) you didn’t actually answer the criticisms I raised, particularly with regards to the point about how your chronological weighting magnifies the reversal of deferred tax movements in comparison to the origination.

It undermines your argument that you can ignore deferred tax charges because these even out in the current tax charge.

With respect, this is not a straw man. This is what your method produces, whether you intend it to or not.

I am sorry you are upset by my original post which I honestly didn’t realise would get so many hits. I might have chosen words more carefully. And I am disappointed that you don’t want to address the points I am raising.

I will try to illustrate the points about weighting to you with further examples when I get some spare time.

I am not upset in the slightest by your post. You are entitled to your opinion.

We are entitled to our opinion. We have patiently explained why we think you are wrong.

We do not agree: you clearly do not see why we focus on transparency and tax havens. The issues you raise are inconsequential red herrings. Whatever we had done we’d have been forced to compromise somewhere. We believe that the outcome is fair. You don’t. And we have illustrated that maybe this is due to ideological differences. In that case further examples are unlikely to persuade even if you showed a different weighting might change scores by one in either direction for some companies since that would be the maximum likely and would be entirely immaterial.

Just when I thought I was starting to understand the difficult principle of deferred tax your comment above proves otherwise. I thought the purpose of deferred tax was to keep the tax charge close to UK standard rate and reduce volatility. You seem to suggest that it is used to mask tax avoidance and gives rise to a permanent deduction. Back to square 1 for me! I need a tutorial before my next exam Richard!

But Richard doesn’t your entire method on the tax rate dimension tacitly assume that IFRS profit actually produces a fair economic result for tax purposes as multiplying that profit by the headline rate is your benchmark for fair tax?

There’s no need to dream up fantasy profits. There’s straight forward things that you can do like adjust for DT on capital allowances which must be low risk items, or for profits obviously not taxable like sales of subsidiaries etec, etc, etc.

Or just recognise the obvious that any analysis at this level is going to be wrong (sometimes totally) and so cannot be a proxy “fair tax” and as others have suggested just stick with the transparency aspects. The point is the tax rate method could easily be endorsing those that do tax avoid and penalising those that don’t. It’s not even useful directionally in its current form.

This is especially the case at an individual taxpayer level. It would be extraordinary to think that this highly simplistic method could uncover that Debenhams plc definitely does not avoid tax (scores 5) but Sainsbury is a rampant tax avoider (score 0)and John Lewis is somewhere in the middle (scores 3).

Ok, so do you think your simplistic method uncovers that Debenhams plc fairly pays tax (scores 5) but Sainsbury unfairly avoids lots of tax(score 0) and John Lewis avoids a fair chunk of taxes? Yes or no will suffice.

If yes, why wouldn’t we just go with your system for taxing them in the first place. That way we would only need a handful of HMRC staff looking after large corporates.

Deferred Tax is a peripheral issue, I have always found it a dubious concept anyway. I suggest you tell critics of the Fair Tax Mark that if they can find a more accurate way of assessing tax paying behaviour – well fine, then just go ahead – it does not change the big picture. And I can I point out that you have support in the Tax Profession, we are not all blind to the scandal of large corporate evade/avoidance.

I would go far as to suggest that the vast majority of tax professionals out there are not blinkered by vested interest and are cheering you on.

There is a simple difference between you and them Richard. You are an integral part of setting the agenda and the course of essential change. They are only driven by protecting the status quo by dissecting every detail to find a chink. They are completely missing the point that, as Stephen says, this is a big picture issue. Hearts and minds are not won in the detail! They have no constructive suggestions as to the way forward and insist that the debate can only be undertaken by those who have a full knowledge of the system. The problem they now have is that the debate is very quickly passing them by.

But what really surprises me is why they are putting so much effort into an issue where we provide alternative data, reveal what we are doing and make explicit why – not least because it has no material impact on the ranking

I think there’s a lot to be said for a Fair Tax Mark. The problem is that this particular mark claims to be about fair tax, but is in fact itself very unfair – as well as misleading and badly put together.